Attorneys argue over soda tax before Commonwealth Court

PITTSBURGH (AP) - An attorney for consumers, restaurants and beverage industry groups asked Pennsylvania's Commonwealth Court on Wednesday to strike down Philadelphia's 1.5-cent-per-ounce tax on sweetened beverages, saying it violates a state law that limits the city's taxing authority, among other laws.

The 1932 law known as the Sterling Act was passed by the General Assembly to give the city its own taxing authority - but also to specifically prohibit Philadelphia from taxing anything already taxed by the state.

Chip Becker, the attorney arguing against the tax Wednesday in Pittsburgh, argued that because soda and other sweetened beverages are already subject to the state's 6 percent sales tax, Philadelphia's tax on them is illegal.

"Philadelphia may not tax any substance that the state already taxes," Becker told the seven-judge panel.

Becker wants the court to reverse a Philadelphia Common Pleas judge's December decision upholding the tax with an order that would send the case back to the lower court so the tax could be declared "invalid and void."

But Mark Aronchick, the attorney defending the city's position, argued the tax isn't on soda, but on its distribution to retail outlets in the city. Because the state's sales tax is on retail sales, whereas the soda tax is paid by retailers to whom the drinks are distributed - and because the state imposes no similar tax at that point in the supply chain - the city's tax is legal and should stand, he argued.

The tax amounts to 18 cents on a 12-ounce can of soda or $1.44 on a six-pack of 16-ounce bottles if retailers pass on the entire amount to consumers.

Berkeley, California, has a similar soda tax, while Chicago taxes retail soft drink sales and fountain drinks. But soda tax proposals have failed in more than 30 cities and states. Democratic Philadelphia Mayor Jim Kenney has pledged to spend most of the estimated $90 million in new tax revenue each year to pay for pre-kindergarten, community schools and recreation centers.

Judge Ann Covey asked Becker how it is that Philadelphia can impose its own tax on cigarettes if the state also taxes them.

Becker explained that the General Assembly had to pass a separate statute allowing Philadelphia to go beyond the authority granted it by the Sterling Act. He said the same thing happened when the city wanted to impose its own 2-percent sales tax on top of the state's.

Becker argued that state's sales tax statute prohibits what's called "tax pyramiding" - that is, allowing different jurisdictions to tax the same product at different points along the supply chain. Because soda is subject to the retail sales tax, its distribution by wholesalers - or any other transaction along the supply chain - should not be taxed, Becker argued. State law also prohibits taxing the same product, service or industry at different rates in different jurisdictions, which Becker said the Philadelphia tax also violates.

The Pennsylvania Supreme Court ruled in September that the "local share assessment" - a tax Pennsylvania's 12 casinos pay to the municipalities where they're located - was unconstitutional because different casinos paid different rates in different areas. The General Assembly is working on a replacement law.

Aronchick argued that the challenges to the soda tax are similar to those raised anytime a specific industry is hit with a new tax.

"It's always 'The sky is gonna fall,' but somehow the sun rises the next day and we move forward," Aronchick said.